What means a Trove?

A Trove is a minter account. It allows users to:

  • Deposit ETH/LSDs as collateral

  • Minting up to 86.9% of the deposited value in wenUSD

  • Maintain, close and manage their loan

Each Trove is linked to a single Ethereum address, so each address can only have one Trove. This simplifies the system and prevents users from opening multiple Troves. Within a Trove, there are 3 elements tracked:

  1. Collateral balance: The amount of assets deposited as collateral. Users can add more assets to their Trove at any time to increase their borrowing power.

  2. Debt balance: The amount of wenUSD minted. Users can repay some or all of their debt at any time.

  3. Annual fee: The amount of wenUSD as interest rate.

So in summary, a Trove allows users to deposit, mint wenUSD, manage their loan, and maintain a sufficient collateral ratio to avoid liquidation.

What is the collateral ratio?

The collateral ratio is the ratio of the value of collateral in a Trove compared to the Trove's debt.

CollateralRatio=ValueofCollateralValueofMinted+ValueofAnnualFeeCollateral Ratio = \frac{Value_{ofCollateral}}{Value_{ofMinted}+Value_{ofAnnualFee}}

For WEN protocol, the collateral is LSDs and the debt and annual fee are denominated in wenUSD. The collateral ratio fluctuates over time based on 3 factors:

  1. ETH price changes - If the ETH price rises, the value of collateral increases and the ratio goes up. If ETH price falls, the ratio goes down.

  2. Changes to collateral or debt - By adding more assets to the Trove or repaying, the ratio can be adjusted.

  3. Change of time

For example, if

  • ETH price is $2,000

  • Trove has 100 ETH deposited ($200,000 value)

  • Trove has minted 100,000 wenUSD, where 500 wenUSD minting fees applies

Then the collateral ratio is:

After 1 year, the collateral ratio is

Users need to monitor this ratio to ensure their Trove has sufficient collateral to cover its debt.

What is the minimum collateral ratio (MCR)?

The minimum collateral ratio, aka MCR, refers to the lowest acceptable ratio of minted wenUSD to collateral assets needed to avoid liquidation. The protocol sets a minimum collateral ratio parameter 115%. This means if you have borrowed 10,000 wenUSD, you will need at least $12,000 worth of collateral assets posted to avoid liquidation.

When do I need to close my trove?

You do not have a fixed repayment schedule. As long as you maintain a sufficient collateral ratio in your Trove (at least 115%), your trove can remain open indefinitely.

However, you'll want to monitor:

  • Liquidation risk if ETH price drops

  • Increasing borrowing fees and annual fees over time

  • Opportunity cost of not holding your LSDs

You decide when the optimal time is to repay, based on the above factors.

What happens if Trove gets liquidated or redeemed against?

If your Trove is liquidated:

  • You will lose all your collateral as it is used to pay off your debt

  • A liquidation therefore means you lose about 13.04% of the value of your collateral assets.

Details are in Liquidation chapter.

If your trove is redeemed against:

There would be two different scenarios:

  • Partial redemption: both debt and collateral decreased, CR increased

  • Full redemption: trove closed, debt gone while collateral decreased

Note that both scenarios do not result in net loss for your portfolio, details are in Redemption chapter.

Who can liquidate Troves?

Anybody can liquidate a Trove as soon as it drops below the Minimum Collateral Ratio of 115%. The initiator receives a gas compensation (200 wenUSD + 0.5% of the Trove's collateral) as reward for this service.

What caused Trove's collateral and debt to increase without user's involvement?

If Troves are liquidated and the Stability Pool is empty (or becomes empty due to the liquidation), all minters will receive a share of the liquidated collateral and debt through a redistribution process.

This only happens when extreme downside market conditions.

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